Ch17 Auctions.ppt

Chapter Seventeen
Auctions
Who Uses Auctions?
Owners of art, cars, stamps, machines, mineral rights etc.
Q: Why auction?
Who Uses Auctions?
Owners of art, cars, stamps, machines, mineral rights etc.
Q: Why auction?
A: Because many markets are imperfect and it is hard to discover potential buyers’ true valuations of your asset. Auctions help to discover this information.
Types of Auctions
English auction:
bids are public announcements
bid price rises until there are no further bids
highest bid wins
winner pays his bid.
Types of Auctions
Sealed-bid first-price auction:
bids are private information
bids are made simultaneously
highest bid wins
winner pays his bid.
Types of Auctions
Sealed-bid second-price auction:
bids are private information
bids are made simultaneously
highest bidder wins
winner pays second-highest bid
also known as a Vickrey auction.
Types of Auctions
Dutch auction:
auctioneer announces a high bid and then gradually lowers the bid
first buyer to accept wins and pays that price.
Reserve Price
A seller specified bid level below which no sale is made.
Economists’ Classification of Auctions
Private-value auctions:
every potential buyer knows for sure her own valuation of the item for sale
all these individual valuations are independent of each other.
Economists’ Classification of Auctions
Common-value auctions:
item for sale has the same value to every potential buyer
potential buyers differ in their own estimates of mon value.